Non-food credit growth continued its downward trajectory in the fortnight ended January 6, hitting a multi-year low of 5.1% on a year-on-year (y-o-y) basis, according to data released by the Reserve Bank of India (RBI). This marks a worsening from the 5.3% growth figure clocked in the previous fortnight. Non-food credit grew to R73.07 lakh crore during the fortnight.

Food credit recorded positive growth for the first time in four months, rising 6.6% y-o-y to R1.07 lakh crore, as against a 5.3% drop in the fortnight ended December 23. This, however, did little to boost growth in overall bank credit, which rose 5.1% y-o-y — unchanged from the previous fortnight — to R74.13 lakh crore.

Deposits with the banking system rose 14.7% y-o-y during the fortnight under review to R105.84 lakh crore. The number is marginally higher than the previous fortnight’s figure of R105.16 lakh crore. The fortnight ended December 23 had seen a 0.7% dip from the previous fortnight for the first time in two months. Banks had been seeing a steady rise in deposits since the government announced the demonetisation of R500 and R1,000 notes.

The credit-deposit (CD) ratio of the banking system, or the proportion of deposits deployed as loans, rose to 70.04% from 69.87% in the previous fortnight. This is the first time the CD ratio has risen since the fortnight ended November 25. It had been falling successively since demonetisation as banks sat on piles of deposits in an environment of weak credit demand.

Lenders have been banking on interest rate cuts to push demand for credit. The last two weeks have seen banks and housing finance companies slashing lending rates aggressively in an attempt to stoke retail credit demand. The country’s largest lender, State Bank of India (SBI), on January 1 reduced its one-year marginal cost of funds-based lending rate (MCLR) by 90 basis points (bps) to 8% and increased the spread over MCLR for most retail loans. Other lenders have followed suit, bringing down their MCLRs by between 15 and 90 bps.